Foreign investors turned a net seller on South Korean securities in November as they took profits on stocks following big gains in the previous month and cut investment in bonds due to small interest rate gap between Korea and others.

According to data released by the Bank of Korea (BOK) on Wednesday, foreign investors net sold Korean securities worth $950 million in November. They net purchased stocks worth $450 million but sold bonds worth $1.41 billion.

Offshore investors became net sellers of Korean securities in November after their appetite for them revived in the previous month. They had net purchased $3.48 billion worth of Korean securities in October after going on a selling spree for two straight months amid escalated geopolitical tensions on the Korean peninsula from North Korea’s nuclear and missile threats.

Foreign investors kept their buying spree on Korean stocks in November but the volume of monthly inflow dwindled to $450 million from $2.84 billion in the previous month. They became net sellers on Korean bonds and sold $2.41 billion worth of bonds in November after purchasing $650 million worth in the previous month.

They slowed down their spending on Korean stocks to take profits on the recent gains and cut their investment on bonds after the interest rate gap between Korea and other countries thinned, reducing the merit of interest arbitrage trading, said a BOK official.

The country’s central bank last month hiked the base rate by a quarter of a percentage point to 1.50 percent from the record low of 1.25 percent it kept since June last year on the country’s economic recovery.

But borrowing conditions for the country have improved thanks to eased geopolitical risks on the Korean peninsula. The spread on the credit default swap (CDS) for the five-year South Korean foreign exchange stabilization bonds averaged 66 basis points in October, down 5 basis points from a month earlier and the lowest since August with 62 basis points.

A lower spread in the insurance against default makes it cheaper for the Korean government and companies to issue bonds.

By Kim In-oh and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]